Billionaire Lu Zhengyao was the ideal customer for ex-Credit Suisse boss Tidjane Thiam as the firm expanded to China. Now Lu's coffee chain empire has become the target of raids – and the big bank is facing credit defaults.
Credit Suisse had for years built close ties with «dream» client Luckin Coffee and its founder, «poster child» Lu, whose relationship with the bank ranged from private banking to stock sales.
This closeness is now taking its toll: an accounting scandal at the fast-growing Chinese coffee chain is threatening the bank's strategy to target wealthy entrepreneurs in the country and serves as a warning to investment banks that eye fortunes in China, «Bloomberg» reported.
As a result of the scandal, the lender was dropped from a $500 million IPO in Hong Kong for Tencent-backed health-care startup We Doctor. It also reported a five-fold increase in loan-loss provisions at its Asia Pacific unit, primarily due to a default by Lu. The bank is now conducting an internal review of the case, and scrutiny on loans to Chinese companies has increased, the publication reported, citing unidentified people familiar with the matter.
Imaginary Sales
The coffee chain operator once claimed a unicorn-status valuation of $1 billion, as Lu shored up resources to take on the country’s leading player Starbucks. But revelations that top executives fabricated sales amounting to 2.2 billion yuan ($311 million) prior to a listing in the U.S. caused shares to plunge more than 80 percent before a trading halt.
Other firms caught in the scandal include investors like Singapore sovereign wealth fund GIC, Centurium Capital, a private equity fund founded by the former China head of Warburg Pincus, Legend Capital and Joy Capital.
Morgan Stanley, Credit Suisse and the other IPO banks also face an investor lawsuit following the stock's collapse.
Gottstein Picks Up the Pieces
Thiam, once so enthusiastic, refused to comment on the affair. Last February, he left Credit Suisse following the «Spygate» scandal.
His successor Thomas Gottstein is now picking up the pieces. As he told the news agency, it is too early to come to any conclusion on the matter. In any case, the firm's strategy in Asia – a legacy of his predecessor – will be retained.
